There are numerous items to consider when deciding whether to accept or complete a hybrid or bifurcated appraisal assignment. If you’re interested in doing these types of assignments, you may want some recommendations on items to include in your report. Here, we explain four key disclosures and disclaimers to consider including in a hybrid appraisal report.
Scope of work disclosure
While the appraiser has broad flexibility in the level of detail and manner of disclosing the scope of work in the appraisal report, there must be sufficient information contained in the report for the client and other intended users that rely on the assignment results to understand the scope of work performed. The appraiser must be careful in accepting a preprinted scope of work on a desktop form and may need to supplement the reported scope of work. It is highly recommended that an appraiser share what he or she did not do as well as what he or she did do in performing the appraisal.
The scope of work must disclose the extent the property was inspected. USPAP states that appraisal reports for real property must contain a signed certification indicating whether the appraiser has or has not personally inspected the subject property. All appraisal reports must also contain sufficient information to enable the intended users to understand the extent of the inspection that was performed.
Any report such as a PCR that was prepared by another professional that was relied upon in developing the appraisal opinion should be identified as well as any other data sources relied upon and the data verification process carried out should be disclosed in the appraisal report.
Take a deep dive into hybrid appraisals with our CE course: Best Practices for Completing Bifurcated and Hybrid Appraisals.
Significant assistance disclosure
Failure to disclose significant real property appraisal assistance is a common violation. This is one of those violations that can be a violation of USPAP and a violation of state law or regulation. It often results in a disciplinary case being opened up against the signing appraiser for failure to disclose real property appraisal assistance.
Per USPAP AO-31,”Significant Appraisal Assistance is related to the appraisal process and requires appraisal competency. Therefore, only those acting as an appraiser sign a certification, or are identified as providing significant appraisal assistance in a certification. Examples of significant appraisal assistance may include:
- research and selection of comparable properties and data;
- inspection of the subject property and comparable properties;
- estimating accrued depreciation; or
- forecasting income and expenses.”
The name of the appraiser who provided significant assistance, but does not sign a certification, must be stated in a certification. It is not required that the description of the assistance appear in a certification, but the extent of the assistance must be set forth in the report as required in STANDARDS 2 and 4.
Thus, if relying on another appraiser (or appraiser trainee) to perform the appraisal inspection in a bifurcated appraisal process, (1) the signing appraiser is responsible for the decision to rely on their work and (2) is required to have a reasonable basis for believing that those individuals who provided significant assistance are competent.
Reliance language disclaimer
A hybrid or bifurcated appraisal that is used only internally by a financial institution client for quality control purposes typically has less risk to the appraiser than if the appraisal is used for a new loan or extending credit as the borrower typically receives a copy of the appraisal report if it is used for extending credit. Undoubtedly, if the client is the only intended user or if the intended use is limited to internal use, the appraiser is potentially exposed to less risk. Therefore, it is of utmost importance that the appraiser clearly identifies the intended users in his or her appraisal report and adds a disclaimer about any other party, not identified as an intended user, that relies upon the appraisal does so at their own risk.
A client and named intended users have an expectation that the appraisal can be relied upon for the intended use. This reliance expectation extends only to those intended users identified and disclosed by the appraiser in the appraisal report. Some of the hybrid/bifurcated appraisal reports may include pre-printed language that is too broad about intended users, which could expose the appraiser to potential liability. Appraisers must ensure that there is language in the appraisal report that makes it clear that parties not specifically named as intended users cannot rely on their appraisal report nor rely on it for any other intended use.
Property inspection disclaimer
No matter who performs the appraisal inspection, it should be clear that it is not the equivalent of a home inspection. An appraisal inspection is required to observe the subject property and the surrounding area for any factors that affect the subject property’s value. While lender clients generally understand the difference between a home inspection and an appraisal inspection, other readers of the appraisal report may be unclear about the difference.
In the case of a hybrid or bifurcated appraisal, it should be clear that the information about the property’s physical characteristics and condition should not be relied upon as a home inspection and that the appraiser does not assume responsibility for the accuracy of such items that were furnished by other parties. The appraiser cannot make any representation or warranty as to the veracity of the information provided by the third party that performed the appraisal inspection.
Here’s an example of a disclaimer that could be used when the appraiser does not personally inspect the subject property:
The client, intended user, and any party not identified as an intended user understands the extraordinary assumptions necessary regarding the data collection process and accepts the risks associated with it and agrees that the appraiser has no responsibility for any matter relating to the condition of the property or other matters reported by any third party or data resource.
For many more examples and illustrations, helpful considerations, and a checklist of practical tips for working with hybrid or bifurcated appraisals, enroll in our CE course: Best Practices for Completing Bifurcated and Hybrid Appraisals.